Japan's Nikkei share average hit its lowest close in two months on Thursday, with shares of exporters hurt by a stronger yen, while uncertainty about the policies of the country's new government dampened investor confidence. Banking shares, including Mitsubishi UFJ Financial Group, stayed under pressure on concerns Japan may introduce a moratorium on the repayment of the principal on mortgages and bank loans to help small and midsize businesses.
"What the market hates the most is uncertainty. We have no clear idea about the direction of the new government's policies. So far, there's no policy ideas that are positive for stocks, with a cut in public spending and the loan moratorium having a negative impact," said Masaru Hamasaki, senior strategist at Toyota Asset Management.
"The Nikkei could even break below 9,000 if the recovery scenario that investors expect for the second half were to fall apart, exacerbated by the stronger yen." In light trade, the benchmark Nikkei began the second half of Japan's fiscal year on a weak note, sliding 1.5 percent to 9,978.64, its lowest finish since July 24. The broader Topix fell 1.5 percent to 896.12.
Market players also said Tokyo shares were likely lifted the previous day on window-dressing buying at the end of Japan's fiscal first half, and that their weakness may be partly because such buying has dissipating. Little impact was seen from the Bank of Japan's closely watched tankan survey, which showed that Japanese business confidence improved as expected in the three months to September.
The yen stood around 89.90 yen to the dollar on Thursday, after hitting an eight-month high against the greenback of 88.23 yen on trading platform EBS on Monday. Chip-tester maker Advantest tumbled 5.8 percent to 2,345 yen and Canon Inc lost 2.8 percent to 3,530 yen. Kyocera Corp slid 2.4 percent to 8,130 yen.
The banking sector subindex fell to as low as 138.37, its lowest since mid-March. In addition to policy risk, plans announced last week by Nomura Holdings to issue up to $5.6 billion in shares have underscored worries that banks might also come out with big share offerings in the face of a global regulatory push for banks to carry bigger capital buffers. Mitsubishi UFJ Financial Group, Japan's top bank, dropped 5.4 percent to 456 yen, Mizuho Financial Group slipped 1.7 percent to 175 yen and Sumitomo Mitsui Financial Group shed 1.9 percent to 3,070 yen.
Sanyo Electric Co Ltd tumbled 7.5 percent to 197 yen after the company said Daiwa Securities SMBC had converted 24.6 million preferred shares it owned in Sanyo into common stock, raising the number of Sanyo's common shares by 9 percent to 2.94 billion shares. Japan Airlines jumped 5.3 percent to 139 yen. Some 1.8 billion shares changed hands on the Tokyo exchange's first section, below last week's daily average of 2.2 billion. Declining stocks outnumbered advancing ones by more than 5 to 1.